“A putt is a putt is a putt.”
-Susie Meyers
And an acceleration is an acceleration… in Real US GDP terms. That was Friday’s “news.” At +2.6% q/q (+2.1% year-over-year), US GDP has accelerated from the Q2 2016 mid-cycle low of +1.3%. Mr. Market has been discounting that all year long.
Looking in the rear-view mirror, both US economic and market history becomes a lot clearer. Where the year-over-year rates of change in US growth and inflation fit on The Cycle’s Sine Curve is trivial. It’s math that is not subject to political debate.
Looking forward is easy too. Any market monkey can believe they see something coming. It’s looking ahead with accurate positioning that’s tough. We can all look at the same market pictures and charts. But it’s what one foresees that counts.
Back to the Global Macro Grind…
No matter where you’ve been positioned, here we are at another month-end. The score is the score is the score. You could have freaked-out and “sold Tech On Valuation” at this time last month but Tech Stocks (XLK) are +5.0% for July of 2017.
What’s next?
Well, despite the Nasdaq registering 3 straight all-time closing highs last week of 6410, 6412, and 6422, it ended up closing down -0.2% week-over-week vs. the Dow +1.2%. Are the Dow’s “value” components about to take over in rotation?
I discussed the potential for a US Dollar and relative performance bottom in the Financials (XLF) in last Thursday’s Early Look. But I also reiterated the SELL call on most things related to Energy and “reflation.” Those things all had a good week:
- CRB Commodities Index bounced +3.1% last week to -5.4% YTD
- Oil (WTI) bounced a big +8.6% last week to -12.8% YTD
- Energy Stocks (XLE) bounced too, +2.1% last week to -11.7% YTD
- Copper ramped back to its Reflation’s Peak (Q117) highs, +5.6% last week to +14.0% YTD
- Financials (XLF) were +0.4% to +7.1% YTD
On the losing side of the weekly ledger:
- US Dollar dropped another -0.8% to -8.8% post another Dovish Fed meeting
- Healthcare Stocks (XLV) corrected -1.3% last week to +16.0% YTD
- Utilities (XLU) lagged again, correcting -0.5% to +9.2% YTD
- European Stocks (EuroStoxx 600) corrected -0.5% to +4.7% YTD
- Canadian Stocks (TSX) dropped another -0.4% to -1.0% YTD
Unbeknownst to 10, 20, and 30 day chart chasers, 1 weekly move does not a @Hedgeye intermediate-term TREND make. That said, daily and weekly moves in price, volume, and volatility always have to be contextualized within TREND and TAIL durations.
While Reflation’s Rally was interesting to watch, it wasn’t A) broad based and B) trending:
- Russian Stocks (RTSI) were down another -1.0% on the week to -12.0% YTD
- Corn was -1.4% on the week to +2.1% YTD
- Nickel was +7.2% on the week but is only +0.8% YTD
That’s right. You’ll have 9 out of 10 dogs in your macro tourist neighborhood barking about “Copper’s breakout” (confirmed as Bullish TREND @Hedgeye 3 weeks ago fyi) and not have a clue that Nickel and Natural Gas are still signaling bearish TREND.
Another thing you’ll hear about last week was that “value outperformed growth.” That’s not entirely true if you look beyond what the Dow did vs. the Nasdaq. European (i.e. “relative value” stocks) stocks continued to under-perform US growth stocks, for example. German and Swedish equities were down -0.6% and -1.4% on the week, respectively.
Another way to look at “growth vs. value” is to consider it, across durations, from a US Equity Style Factor perspective:
- Top 25% SALES growers were flat last week, +2.6% in the last month, and +14.0% YTD
- Top 25% EPS growers were +0.2% last week, +2.8% in the last month, and +14.2% YTD
- Bottom 25% SALES growers were +0.2% last week, +1.7% in the last month, and +4.2% YTD
- Bottom 25% EPS growers were +0.3% last week, +1.8% in the last month, and +3.2% YTD
*Mean performance of Top Quartile vs. Bottom Quartile, S&P 500 Companies
So, while I get that some of these “value” oriented, slower-growth, stocks have bounced, they are still under-performing their US #GrowthAccelerating counterparts on a 1-month-price-momentum basis and getting smoked on a YTD basis.
The one “value” sector I am considering getting back into on the long side is the Financials (XLF) and that view was outlined in last Thursday’s note. The one cyclical “growth” sector where we’re finding tasty shorts is Industrials (XLI).
In other words, our team culture and risk management #process isn’t so concerned with style as it is with trending results. Alpha is alpha is alpha. And we’ll do our best to make good putts for it in August.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND research views in brackets) are now:
UST 10yr Yield 2.22-2.34% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
XOP 31.21-33.42 (bearish)
DAX 12070-12405 (bearish)
VIX 9.21-10.88 (bearish)
EUR/USD 1.15-1.18 (neutral)
Oil (WTI) 45.16-50.14 (bearish)
Nat Gas 2.81-3.05 (bearish)
Copper 2.73-2.93 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
